Factors affecting microfinance development in Vietnam.

Authors
Publication date
2017
Publication type
Thesis
Summary The emergence of microfinance has been seen as a remedy for many of the social problems of poverty by virtue of its effectiveness in providing credit, improving social equity and reducing poverty levels. Millions of unbanked households below the poverty line have gained access to financial services through microfinance programs. However, the development of microfinance has not followed an identical model for all countries, and microfinance institutions (MFIs) have had varying degrees of success. Many of them still face major constraints in effectively providing profitable microfinance services. The expansion of microfinance programs remains a major challenge that hinders the development of the microfinance sector. This thesis aims to contribute to the current state of knowledge and research on the development and characteristics of the microfinance sector by analyzing the policy factors that may affect its development in the Vietnamese context by applying both qualitative and quantitative research methods.We will conduct a comparative analysis between financial innovation in Vietnam's microfinance system and two international benchmark models: Grameen Bank and Indonesia's Bank Rakyat (BRI) to determine what constraints limit the scale and scope of microfinance activities in Vietnam. We will also examine which types of microfinance models are appropriate: either for-profit commercial models or social microfinance projects. In addition, empirical analyses will be carried out using OLS and GMM techniques to examine the impact of the institutional environment as well as macroeconomic factors on the profitability of MFIs. The results provide evidence of persistent profitability and the existence of economies of scale in microfinance. Loan quality appears to be a key determinant of the profitability of MFIs in Vietnam. Our analysis also confirms the important role of the state as well as the decisive role in the self-innovation of microfinance institutions.
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